BUILDING firm Costain urged consulting and business services group Mouchel to enter into bid talks yesterday after going public on a failed £119million approach earlier this month.

Costain urged consulting and business services group Mouchel to enter into bid talks yesterday

Costain said it had made the all-share approach, of around 105p a share, on December 2 but it was rejected on valuation grounds. No talks have been held since.

“We approached them with a desire to speak to their management team. That opportunity was rejected,” said chief executive Andrew Wyllie. “The door is open and remains open. As a result of going public we would hope to talk to their shareholders and we’ll see how it develops from there.”

It refused to say whether it would increase the bid or change its terms to include a cash element.

Mouchel’s shares rocketed by a third, up 23½p to 96½p, while Costain fell 1p to 205p.

Mouchel confirmed that it had rejected the approach because it “significantly undervalued the company and its future prospects”. It described the move as “opportunistic” following the fall in the firm’s share price since it issued a profits warning in October. This resulted from a drop in demand for its services as Government cuts take hold.

“Mouchel is still winning new business,” a spokesman said. ‘They are winning them all the time.”

Costain said there was a “compelling strategic rationale” behind a combined group with an order book of over £4billion. “Mouchel shareholders would have a stake in a well-capitalised business with a clear strategy for future profitable growth,” it said.

“It would benefit from enhanced growth prospects with an enlarged private and public sector customer base.”

Analysts expect Costain, or other firms, to come back with a higher bid. Brewin Dolphin said Mouchel’s share price made it “attractive” given longer term opportunities in local authority outsourcing. Peel Hunt said a 156p bid could win the day with JP Morgan going as high as 175p.